Private Label Cosmetics and Store Loyalty

The success of selling private label cosmetics depends heavily on the reputation of the store's brand and the degree it attracts loyal support. Some retailers looking into this field may wonder what it takes to inspire customer loyalty over national brands, while others may assume they can't compete with national brands due to their size, advertising budget and market reach.

What the Research Says

How well can private label cosmetics compete with national brands and to what degree does store loyal play a role? Researchers have drawn mixed results, so more studies will have to be conducted in the future to get a clearer answer to this question. One thing that's a fact, however, is that private label cosmetics are on the rise compared with a few decades ago. Beauty products are in high demand and many consumers like to try out new choices.

Customer loyalty can be measured by money spent, items purchased and number of shopping trips. There is still debate among researchers as to whether customers who embrace private labels are merely doing so because of price savings or a genuine loyalty toward the brand. A fact that cannot be argued is that private label cosmetics market share is growing consistently in the United States and Europe this century.

An important observation by researchers such as Singh, Hansen and Battberg (2006) is that loyal private label users can shift to national brands when a Walmart is built in the area. This revelation may be obvious to many retailers who see it as a reason not to compete. But the truth is, there are plenty of opportunities for private label cosmetics to compete with big chains that offer value, simply by choosing a more innovative solution for clear cost savings.

It's interesting that research from last decade pointed toward the notion that market share was limited for private labels. But since then PL market share in the United States has climbed to nearly 20 percent while it has grown to over 40% in some European countries. Overall, the UK, France, Germany, Switzerland and Belgium have much higher PL market shares than the United States.

How Private Labels Can Compete for Loyalty

The private label brand has a competitive edge over national brands in the sense that the retailer can give its own brand more visibility in the store. It comes down to how much customers respect the store to a degree. Some of the key variables that determine this relationship include:

assortment of different products offered
product quality and utility
affordable vs premium pricing
customer service and store policies on returns
number of competing brands
attractive packaging that connects with customer values

Positioning strategies may be the deciding factors as to how well a retailer builds brand awareness and eventual customer loyalty. Another key advantage that a retailer has is its agility to shift to other products based on market research, whereas national manufacturers often stick to more rigid production and distribution schedules. That's what makes them vulnerable when an economic downturn occurs, as much of their supply chain movements are planned quarters in advance. The ability to make quick brand adjustments can create market excitement.

During a recession the private label brand can take advantage of beating national brand prices to lure more attention. National brands also create risks for themselves by underestimating the power of store brands. Last century was all about big players dictating market choices, whereas in this century alternatives are clicks away online. Price and value are major concerns of consumers who look for deals on their smartphones.

Planning for Private Label Success

If a retailer's brand continuously provides better value to customers than what large companies offer, it has a chance of chipping away at market share when after a recession subsides. It's essential for a store brand to generate memorable impressions with customers to overshadow the effects of wide scale advertising that national brands enjoy.

The retailer must take a confident yet cautious approach and first study how its bigger competitors attract loyal followers. Is it simply the price or is there something special about the product? This question needs to be answered before entering the market. Once it's clear that there is some type of void in the market either for lower price levels, higher quality or better value, the campaign can begin.

Conclusion

As private label cosmetics continue to gain broader market acceptance, retailers must learn more about how to retain customer loyalty. Studies of the past few decades have shown that not all the answers are evident yet as to how private labels should present themselves as alternatives to established and well publicized brands. One of the keys to future private label success will be communicating with customers more frequently and analyzing their feedback to streamline store brands.